Site Search Navigation

Search NYTimes.com

Loading...

See next articles

See previous articles

Site Navigation

Site Mobile Navigation

Supported by

Notes On The Eurobubble

October 7, 2011 12:24 pmOctober 7, 2011 12:24 pm

Alan Greenspan has written another deeply misleading, destructive op-ed. Also, the sun rose in the east. Greenspan is quickly establishing himself as the worst ex-Fed chairman of all time. But since he has introduced a brand-new fallacy into the debate, it’s worth taking on.

One of the big problems in coming to any rational response to the euro crisis has been the insistence of key players, especially but not only in Germany, of seeing it as a morality play: spendthrift, irresponsible politicians brought it on through budget deficits. It has been very hard to get across the point that this is a Greek story only, that Spain and Ireland actually had budget surpluses and low debt on the eve of the crisis.

What Greenspan does is to introduce a whole new fallacy: he takes the rise in Southern European costs and prices during the runup to the crisis as a sign of moral turpentine turpitude:

From 1990 through to the end of 1998, euro-south unit labour costs and prices rose faster than in the north. In the years following the onset of a single currency, that pace barely slowed. In fact, the underlying trend was stopped only by the financial crisis of 2008. Since then there have been signs of price level stabilisation in the north and the south.

Gosh, why should wages and prices have risen faster in, say, Spain than in Germany? Well, maybe this had something to do with it:

Hello? There was a huge boom in Spain, driven by housing and financed by large private — not public — capital inflows. Of course wages and prices rose. And it’s really hard to see what, short of either imposing capital controls or leaving the euro, Spanish officials could have done to stop it.

I understand that some people really, really want to blame the victims here. But that doesn’t make it right.